04 April 2017

Tax Scam Hinged on 'Secret Accounts' Theory, Judge Told

First day of Sean David Morton's trial started with opening statements. Sounds like self-described "legal expert" Morton (pictured left) blabbed as he usual does with one reporter describing his opening remarks to the court as "discursive" with Morton making the false claim that he was the person who exposed Area 51 (we all know it was investigative journalist George Knapp who actually did that, not Morton). I can only imagine the disjointed rambling Morton thought he could dazzle the court with. Problem is, a court is not a radio program or a conspiracy convention as you actually have to be able to proffer facts.

Tax Scam Hinged On ‘Secret Accounts’ Theory, Jury Told

Law360, Los Angeles (April 4, 2017, 11:00 PM EDT) -- A California couple accused of seeking millions in unwarranted tax refunds believe in a complicated theory that Americans are the collateral backing U.S. currency and can pay debts through their “secret accounts,” a federal jury heard Tuesday during opening statements in their tax fraud trial.

Defendants Sean David Morton and Melissa Morton are charged with conspiring to defraud the United States, filing false claims and passing fictitious financial instruments, in violation of federal laws. The charges stem from their participation in a so-called “redemption scheme,” which according to the government’s trial brief is “the most prevalent nationwide scheme used by tax defiers and sovereign citizens” and has been in use in some form since at least 1987.

During opening statements Tuesday, Assistant U.S. Attorney James C. Hughes told the jury that the Mortons individually filed false income tax returns with the IRS for certain years starting from 2005. Sean Morton’s returns sought millions of dollars in refunds. One scheme the couple employed was filing phony Forms 1099-OID, showing purported income interest earned and taxed from financial institutions like Bank of America and JPMorgan Chase Bank to support their claims for refunds.

“There's a problem with this. The banks are going to tell you that they never issued those 1099s to the defendants. They never earned any interest from the banks and the banks never paid any withholdings to the IRS,” Hughes told the jury. “These withholdings didn't exist.”

The Mortons also submitted to the IRS bogus documents titled “Coupon for Setoff, Settlement, and Closure” and “Non-Negotiable Discharging Bond and Indemnity,” which they purported to be actual securities and financial instruments issued under the authority of the United States that could be used as a means to pay off debts.

Sean Morton is representing himself at trial pro se. An attorney for Melissa Morton, Steven Brody of the Law Offices of Steven A. Brody, told the jury that the government has no evidence that his client set out to defraud the IRS or that she “didn’t believe 100 percent in the legitimacy” of the documents she filed. The government has to prove beyond a reasonable doubt that the Mortons acted in bad faith, he added.

“They have to prove to you that they set out to lie, cheat and steal,” Brody said. “And you’re not going to see that evidence.”

The couple, he said, met a “tax and finance guru” at a “new agey” store where Sean Morton, a “colorful character,” would sometimes lecture, the attorney said. The pair jumped on board with theories they were told about U.S. Department of the Treasury money held in their name that can be accessed.

The Mortons believed that “in 1933 the United States went off the gold standard and at that time instead of backing the United states currency with gold, it was backed by the U.S. citizens,” Brody told the jury. “The U.S. citizens became the collateral for our debts, the debts of the U.S. government. And [they were] taught that if you knew the right steps, if you knew the right language, if you had the right instruments, if you had the right laws, you could use these sort of secret accounts of collateral to pay off your debts to the public.”

Their belief in the theory was bolstered when other people they knew began to get refunds based on “this 1099 OID process,” the attorney said. Eventually, the couple began to help others prepare the bond and tax document.

During his discursive opening statement, Sean Morton told the court that he was being falsely accused of doing something wrong when he did nothing more than “follow the advice of people I respected, who had a deep understanding about the financial system.” He also lauded the first Americans, who wished to “live free from the burdens of the crown” and who wrote the Constitution; said that he and Melissa Morton were not married by law because “that puts more than one person in bed with you”; and exclaimed he’s a film producer and investigative reporter, “who exposed Area 51,” the military site where there’s been claims of UFO sightings.

The government wants to throw the couple in jail for the rest of their lives, he said, “for filing paperwork that didn’t harm anybody,” he said.

The indictment against the couple includes an allegation that Sean Morton filed a false 2006 income tax return in 2010 that requested a refund of $2,809,921.

In court Tuesday, the attorney for the government said that while most of the refunds the defendants submitted were caught by the IRS, so no refunds were paid, one “slipped through,” and in April 2009 the IRS paid Melissa Morton a refund of $480,322 that was deposited into a joint account held by the couple.

“You’re going to see bank records showing just how fast the Mortons moved to get these funds out of that account,” Hughes said.

The prosecutor also told the jury that the Mortons committed fraud against not only the government but also against others. One witness will testify that she paid the couple $2,500 to put together the bond paperwork that they said would pay off her student loan debt. It didn’t, and the Mortons refused to provide her with a refund.

The United States is represented by Assistant U.S. Attorneys Valerie L. Makarewicz and James C. Hughes.

Sean David Morton is representing himself pro se. Melissa Morton is represented by Steven Andrew Brody of the Law Offices of Steven A. Brody.

The case is U.S. v. Morton et al., case number 2:15-cr-00611, in the U.S. District Court for the Central District of California.